The profitability of the contracts that “Yacimientos de Litio Bolivianos” (YLB) intends to sign with the Russian company Uranium and the Chinese consortium CBC is their real Achilles heel.
The expenses of the project are determined by each company’s investments and operating costs, so that, to justify the profitability of these contracts, the authorities in the sector had no choice but to overestimate the income that would be generated by the sale of lithium carbonate (Li2CO3) produced in the plants.
In fact, the international price of Li2CO3, with the sale of which the project will be supported, has been estimated by YLB at around $30,000 per ton ($/t), when the current price on the Shanghai Metal Market (SMM), which is the one agreed to settle sales, does not reach $10,000/t. As a result, the plants are uneconomical and unsustainable. YLB argues that future price projections for Li2CO3 are encouraging and that the assumptions in the financial annex to the contracts are correct.
Since no one has a crystal ball to guess how that price will evolve in six or more years (when hopefully plants in their first stage will start producing), we can try to analyze the factors that influence the setting of that price.
To begin, let’s look at supply and demand.
Electric vehicle batteries are the main users of Li2CO3 and there’s no doubt that this demand will continue to grow, but more slowly than you’d like. At the same time, supply will also grow, but more rapidly, so that any increase in prices will be slowed down by higher production, especially from rock deposits whose extraction is currently more expensive. In short, if the price goes up, the supply goes up and the price goes down again.
In terms of supply, there is no room for spectacular increases in the price of Li2CO3 because there is more lithium on the planet than previously thought, even if it is still concentrated in a few countries. In fact, not a week goes by without the discovery of another large (rocky) deposit, also in China and the United States, the main consumers. However, the profitability of these projects depends on the “cost of production/selling price” ratio, which tends to increase.
In addition, technological advances in mining processes could reduce production costs, which would not help at all to increase the price of lithium, because it would increase supply. In short, with more lithium extracted, the price is unlikely to rise.
Furthermore, research is progressing and in the medium term more than one alternative to lithium batteries may emerge, mainly for static equipment, where the lightness of lithium batteries is no longer an advantage.
And, finally, geopolitical factors are destined to play a greater role in the international trade of this strategic resource, especially having such a reckless character in the White House, who has already put the brakes on the global agenda on climate change.
Based on the above, there is no indication today that the price of Li2CO3 will reach values above $20,000/t in the next 10 years, so the financial assumptions of lithium contracts are reduced to good wills to justify Bolivia’s late and hasty entry into the lithium business.
In short, the problem of profitability is YLB’s: Russian and Chinese companies will take all the production and win, whatever the price of Li2CO3.
For this and much more, the Plurinational Legislative Assembly must consider in conscience whether it is convenient to approve these contracts.